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Pro: Biotech Is The Hottest ETF Of 2017 With Plenty Of Upside Ahead

Pro: Biotech Is The Hottest ETF Of 2017 With Plenty Of Upside Ahead

The single hottest large-cap exchange-traded fund, the SPDR S&P Biotech (ETF) (NYSE: XBI), is up more than 40 percent since the start of 2017 and by 10 percent in the past two weeks alone.

Many investors aren't willing to assume the inherent risk that comes with investing in highly volatile biotechnology companies, especially smaller and mid-cap sized companies. But for investors with a higher risk tolerance, the ETF's strong performance year to date is likely to continue, at least according to Cowen & Co.'s David Seaburg.

There are plenty of reasons to support the ETF's strong performance throughout 2017, including various M&A transactions, Seaburg explained during a recent CNBC "Trading Nation" segment. For example, Gilead Sciences, Inc. (NASDAQ: GILD) blockbuster deal to acquire Kite Pharma Inc (NASDAQ: KITE) has "shifted the narrative for biotech" and made investors "very comfortable" to buy the large-cap biotech names.

In fact, many of the large cap biotech stocks that are over-represented in the biotech ETF are still trading at "super-depressed" valuations because of their decaying legacy platforms, he continued. But now these companies are "bolting on some new prospects for growth."

"All of the sudden you're seeing some investors come back in," he said.

Perhaps an encouraging sign to indicate there is still room for upside is the fact that the biotech group continues to trade at levels that are notably below their 2015 highs, the analyst suggested.

Nevertheless, the biotech ETF could "come in a little bit" near its 52-week highs, but there is no reason to suggest that the strong performance isn't "warranted."

Related Links:

Street Puts Stamp Of Approval On Gilead's Kite Pharma Takeover

A Sign Of Things To Come? Traders Are Betting On More Biotech Mergers

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